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Lucky lots and unlucky investors

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Abstract

The number 8 is considered lucky under the Chinese culture. This paper tries to examine whether investors hold such superstitious belief in the Hong Kong Stock Exchange. Using the transaction level data, we first show that more intense net buying occurs at 8-ending lots. Next, we seek favorable evidence in support of financial complexity hypothesis and informed trading hypothesis, both of which are effective in expounding the prevalence of this biased trading behavior. Finally, we find that traders’ learning by means of information acquisition is able to alleviate the lucky-8 effect on superstitious traders.

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Notes

  1. David Derbyshire, Why `lucky 7’ really is the world’s magic number, http://www.dailymail.co.uk/news/article-2601281/Why-lucky-7-really-magic-number.html, 10 April 2014.

  2. Due to being sourced directly from the leading information system (Bloomberg), the high-frequency data in this paper has a better quality relative to that from the Thomson Reuters Tick History (TRTH).

  3. While price contribution (PC) is the second term specified in Eq. (2), price contribution per trade (PCT) is calculated by adjusting PC with its daily trades of the same-category lot.

  4. We begin with performing a cross-sectional regression on Eq. (5) for each day and report the time-series average estimated coefficient in Table 4.

  5. The model refers to “Appendix”.

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Acknowledgements

We thank Cheng-Few Lee (Editor) and anonymous referees for their helpful comments and suggestions. Chen acknowledges the Start-up Research Grant (SRG2018-00115-FBA) support from University of Macau. Ko thanks the financial support of the Multi-Year Research Grant (MYRG2017-00086-FBA) to University of Macau. All errors remain our own responsibility.

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Authors and Affiliations

  1. Department of Finance and Business Economics, Faculty of Business Administration, University of Macau, Macau, China

    Tao Chen & Stanley Iat-Meng Ko

  2. Dubai Business School, University of Dubai, Dubai, UAE

    Andreas Karathanasopoulos

  3. Prince Mohammad Bin Salman College (MBSC), King Abdullah Economic City, Kingdom of Saudi Arabia

    Chia Chun Lo

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  1. Tao Chen
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  2. Andreas Karathanasopoulos
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  3. Stanley Iat-Meng Ko
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  4. Chia Chun Lo
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Correspondence to Stanley Iat-Meng Ko.

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Appendix: Glosten and Harris (1988) model

Appendix: Glosten and Harris (1988) model

The Glosten and Harris (1988) model is specified as follows:

$$\Delta P_{t} = \alpha + c_{0} \Delta Q_{t} + c_{1} \Delta \left( {q_{t} Q_{t} } \right) + z_{0} Q_{t} + z_{1} q_{t} Q_{t} + \mu_{t}$$

where Pt is the transaction price for at time t, Qt is the buy-sell trade indicator variable equal to 1 (0) for a buy (sell), and qt is the trade size measured by the number of shares traded. ∆ represents the first difference.

After estimating the Glosten and Harris (1988) model for each stock, the adverse-selection cost can be captured by \(z_{0} + z_{1} \tilde{q}\), where \(\tilde{q}\) is the median of trade size for that stock.

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Chen, T., Karathanasopoulos, A., Ko, S.IM. et al. Lucky lots and unlucky investors. Rev Quant Finan Acc 54, 735–751 (2020). https://doi.org/10.1007/s11156-019-00805-8

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